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THE EURO ZONE

Marshalling the forces

Mark Nayler

27 March 202016:27

In a speech on Monday, prime minister Pedro Sánchez implied that it would be irrational for Brussels to refuse his requests for aid in dealing with the economic impact of Covid-19. The Socialist leader has a point: what does the EU think it's for if not to help its member states when they're in dire straits?

Outside help, especially in dealing with costly crises, is often necessary for economies as fragile as Spain's. The Spanish government leaned on the EU in 2012, for example, when it received a huge bailout to save the country's stricken banking sector. Now, when the stakes are much higher, Spain should also expect and receive financial assistance from Brussels.

In a reference to the aid package given to Western Europe by the US after World War II, named after US Secretary of State George Marshall, Sánchez has requested that Brussels implement a "major Marshall Plan".

Combined with an emergency package of €200 billion to be provided by his Socialist government, this would give Spain a decent chance of withstanding the pandemic's economic impact, which is likely to be significant. This week, the Bank of Spain said that the rapid spread of the virus, coupled with the lockdown imposed to try to halt it, has already "drastically" altered GDP growth forecasts for 2020.

Given the urgency of the economic and sanitary situations, especially after a week in which Spain's fatality rate surpassed China's, progress needs to speed up. A meeting among the eurozone's finance ministers on Tuesday yielded broad agreement that aid should be provided to badly hit countries such as Spain and Italy, perhaps in the form of allowing them to borrow up to 2% of their GDP from the European Stability Mechanism.

Issues concerning repayment aside, the main problem here is that sums need to be tailored to differing economies, as indeed they were in the Marshall Plan (in which the UK was the largest single recipient of aid between 1948 and 1951). Y

et in the current crisis, perhaps there is less differentiation to factor in than usual - certainly less than there is when devising annual deficit-reduction targets, a challenge that the EU ineffectively addresses by setting the same goal for each country. Although a more nuanced approach is required when working out aid packages for countries struggling with Covid-19, the big problems - employment, productivity, healthcare - are likely to be the same across the bloc.

Hopefully, an action plan will emerge from a meeting of EU leaders due to be held on the day of writing (Thursday). If we're at war with this fast-moving, destructive virus, to use Sánchez's preferred metaphor, the EU can't be neutral bystander, nor can it be sluggish in launching its counter-attack.

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